Trial Opens in Collapse of Dewey & LeBoeuf Firm

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Ex-employees of Dewey & LeBoeuf, Steven Davis, second from right, Joel Sanders, third from right, Zachary Warren, third from left, and Stephen DiCarmine, left, arriving in court in March.CreditCreditCarlo Allegri/Reuters

Three former executives of the law firm of Dewey & LeBoeuf, who are accused of using accounting gimmicks to defraud its lenders, sought to deflect the blame for the once-prominent firm’s collapse during the start of their trial on Tuesday.

In an opening argument in Manhattan Supreme Court, a defense lawyer for Steven Davis, the firm’s former chairman, said “greedy” lawyers who abandoned the firm and took big clients with them brought about Dewey’s bankruptcy filing in May 2012 by weakening the firm’s already precarious financial situation.

The lawyer, Elkan Abramowitz, said Mr. Davis was unaware of any wrongdoing in the firm’s accounting department. If anything improper did take place, as prosecutors contend, then those activities were carried out, Mr. Abramowitz said, by a group of “panicky people” working largely on their own.

Mr. Abramowitz cast his client — a leading force behind the 2007 merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, which created a behemoth of a firm with 1,300 lawyers — as something of a victim who was betrayed by his fellow partners.

“Disloyal partners took clients with them, and they rendered the firm unable to survive,” Mr. Abramowitz said. “They picked up their marbles and ran.”

Austin Campriello, the lawyer for Stephen DiCarmine, the firm’s former executive director, sounded a similar note in his opening statement to the jury of eight women and four men.

Mr. Campriello said merger negotiations with another law firm that might have saved Dewey from bankruptcy were “torpedoed” when someone leaked word to the news media that Manhattan prosecutors were investigating the firm’s finances.

“Steve was the victim of an ill-conceived quest to blame someone for the collapse of a law firm that he didn’t cause,” Mr. Campriello said.

A year ago, Cyrus R. Vance Jr., the Manhattan district attorney, charged Mr. Davis, Mr. DiCarmine and Joel Sanders, the firm’s former chief financial officer, with dozens of counts of larceny, fraud and falsifying business records. The lengthy indictment, which included excerpts from emails sent by the three men, all of whom are lawyers, painted a picture of a well-orchestrated campaign to mask Dewey’s failing finances from banks and insurers that either lent the firm money or invested in a $150 million bond offering.

A fourth defendant, Zachary Warren, who worked as a client relations manager and is now also a lawyer, is scheduled to be tried after the trial of Mr. Davis, Mr. DiCarmine and Mr. Sanders.

Mr. Vance’s office has sought to bolster its pending cases with the guilty pleas it secured more than a year ago from seven other employees at Dewey, many of whom once worked in the firm’s accounting department. The former employees, most of whom are not likely to serve any time in prison, are expected to testify during the trial along with dozens of other witnesses.

The case against the three former Dewey executives is the most prominent financial crimes case brought by Mr. Vance’s office, and also promises to be the most complex. The trial is expected to last six months and will delve into arcane accounting treatments and year-end adjustments that prosecutors contend made Dewey appear to be generating more revenue than it actually was.

Mr. Vance was in the courtroom for a portion of the 90-minute opening statement by Steve Pilnyak, an assistant Manhattan district attorney, who used graphics and charts to help map out the prosecution’s case for the jury. The graphics appeared on a large screen behind Mr. Pilnyak, who faced the jury and methodically explained all of the accounting maneuvers that prosecutors say the firm used over four years to burnish its financial situation.

Mr. Pilnyak said the maneuvers, which included reclassifying loans as fees from clients, backdating checks and counting partner capital contributions as revenue, were carried out by lower-level employees at the direction of the three former executives.

He added that “the evidence will show that these defendants directed employees of Dewey” to carry out false adjustments worth tens of millions of dollars. At several points during his opening statement, Mr. Pilnyak told the jury that the year-end adjustment carried out by Dewey’s accounting department were “false, false and false.” He said the former executives were determined to improve the look of Dewey’s finances in order to encourage insurers and others to invest in a $150 million debt offering in 2010 and to avoid activating covenants in its bank loans that would have forced the firm to pay more money.

Mr. Pilnyak said the accounting gimmicks did not stop until 2012, when the defendants “were simply unable to fend off reality” and “years of accounting fraud directed by the three defendants proved too much.”

Mr. Abramowitz, the lawyer for Mr. Davis, countered that all of the adjustments pointed out by prosecutors added up to just a few million dollars for a firm that at its peak generated $1 billion in gross revenue.

Given the expected length of the trial, Justice Robert M. Stolz, who is presiding, has already announced the jurors will have Fridays off in addition to the weeks around the Fourth of July and Labor Day holidays.

The judge has already shown some concern for the jurors and their focus on the case. At one point during Mr. Pilnyak’s opening statement, Justice Stolz briefly stopped the proceedings so the jurors and people in the audience could take a small break.

“This is a good time for everyone to stand up and stretch,” the judge said.

A version of this article appears in print on , Section B, Page 1 of the New York edition with the headline: Trial Opens in Collapse of Dewey. Order Reprints | Today’s Paper | Subscribe